Judge rules Chesley was part of fen-phen scam, holds him liable for $42M judgment

By John O'Brien | Aug 5, 2014

BURLINGTON, Ky. (Legal Newsline) – A Kentucky judge has ruled that a once-prominent plaintiffs attorney should also be liable for the $42 million judgment against the attorneys who scammed their clients during fen-phen litigation.

Boone County Circuit Court Judge James R. Schrand entered an order on July 29 that holds Stanley Chesley jointly and severally liable for the $42 million judgment entered years ago against three Lexington, Ky.-area lawyers – Shirley Cunningham, William Gallion and Melbourne Mills Jr.

Chesley, who is married to a federal judge and was once a major donor to Democratic candidates, was disbarred by the Kentucky Supreme Court, suspended by the U.S. Supreme Court for 40 days and ordered to show cause why he shouldn’t be disbarred by the high court.

Cunningham and Gallion were sentenced to 20 years in federal prison for their actions. In 2013, Chesley retired from the practice of law.

During the fen-phen class action litigation, Chesley received $20.5 million of a $200 million settlement.

“Chesley signed on as co-counsel representing the Plaintiffs in the Guard matter when he entered into his fee-division contract with Gallion, Cunningham and Mills,” Schrand wrote.

“Chesley shared the common purpose to be carried with Gallion, Cunningham and Mills. They agreed on how they would share the work and how they would share the profits. Chesley maintained a voice in the managerial control of the enterprise.

“The Court therefore finds that… Chesley is jointly and severally liable with Gallion, Cunningham and Mills for the damages the Plaintiffs suffered.”

The lawsuit at issue is Darla Guard, et al or Jonetta Moore, et al v. A.H. Robins Company, et al.

The suit, filed in Boone Circuit Court in 1998, sought damages for injuries from the diet drug known as fen-phen.

Chesley was one of the four attorneys involved in the 2001 settlement with American Home Products, the manufacturer of the drug. The others were Cunningham, Gallion and Mills.

The lawyers received roughly 50 percent of the $200 million settlement. Their 431 clients received the rest. Chesley, himself, collected a $20.5 million fee for negotiating the settlement.

The clients later sued the lawyers for allegedly breaching their duties by diverting most of the settlement money to themselves. They were awarded $42 million.

In 2009, Cunningham and Gallion were sentenced to 20 years in federal prison for their roles in stealing the settlement money. Mills was acquitted of all charges. All three have lost their law licenses.

Judge Joseph F. Bamberger, a senior status special judge who approved the settlement, later resigned when it was revealed he was paid $5,000 a month as a director of a phony charitable entity, The Kentucky Fund for Healthy Living, which was funded by the settlement and allegedly directed by the lawyers.

Chesley, never charged in the criminal case, has maintained he was not co-counsel for the plaintiffs and was not aware that the other attorneys were deceiving their clients. He simply was brought in to negotiate the settlement, he has said.

However, the Kentucky Supreme Court disbarred him in March 2013 and called his $20.5 million fee “unreasonable.” Attorneys received half of the $200 million settlement.

“He has shown nothing to demonstrate that he expended a great deal of time and labor on the case,” Chief Justice John D. Minton Jr. wrote for the court.

“The issues of liability were not particularly difficult or novel, and even if they were, Respondent did not do the heavy-lifting on that aspect of the case.”

In August 2013, the Kentucky Supreme Court affirmed the $42 million judgment against the attorneys for which Chesley is now jointly and severally liable. Punitive damages could also be added.

From Legal Newsline: Reach editor John O’Brien at jobrienwv@gmail.com.

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